Mumbai, January 6

The mutual fund industry has urged the government to restore the indexation benefit on all long term capital gains from debt funds and treat capital gains on redemption of debt fund units held for over one year for tax rate of 12.5 per cent, as applicable in respect of listed bonds.

MFs have requested relaxation of complying with various GST compliance on securities lending related transactions.

Prior to Budget 2023, investments in debt funds held for over 3 years were rightly allowed to avail indexation benefit to mitigate the effect of inflation on capital gains.

Last July, the Budget removed the indexation benefit retrospectively for all old long-term investments in debt funds made before March 2023.

Inflation neutraliser

Debt MFs on long term average basis have given 6-8 per cent return. While indexation is not a tax waiver but a neutraliser to the impact of inflation, the removal of indexation benefit will have material impact on debt MF investors, said AMFI.

Debt MF investors are already taxed at marginal rate since April, 2023, which hurt them significantly and now removal of indexation benefit for grandfathered investment before March 31, 2023, will hurt old investor also, it added.

While indexation relief is provided to real-estate and property owners, the same has been denied to debt MF investors. Restoring the benefit on long term capital gains from debt funds will boost the confidence of retail investors in the debt market and boost economy, said the industry body.

AMFI has also requested that capital gains on redemption of ‘units of debt’ oriented mutual funds held for over one year should be taxed at 12.5 per cent, as applicable in respect of listed bonds.

Currently, debt MF is considered as short-term capital asset irrespective of holding period and are taxed at applicable rates, whereas listed bonds held for 12 month is considered for long term tax rate is 12.5 per cent.

Increased tax liability

AMFI has also urged the government to restore the short term capital gains tax to 15 per cent from 20 per cent and long term capital gain tax to 10 per cent from 12.5 per cent. The hike in both these has increased the tax liability to 30 per cent and 25 per cent, respectively.

The industry also wants the Finance Ministry to allow all MFs to launch pension-oriented MF schemes — Mutual Fund Linked Retirement Scheme — with similar tax benefits as applicable to NPS.

Currently, each MF Pension scheme needs to be notified by CBDT for being eligible for tax benefit on a case-by-case basis. Thus, presently only a handful of MF retirement benefit/pension schemes have been notified by CBDT qualify for tax benefit under Sec 80C.